Saskatchewan thermal oil – thick, heavy crude that is steamed to make it flow in a well – near the border-straddling city of Lloydminster competes with the famed Permian basin fields for low costs, output doesn’t decline quickly like shale wells, and producers say the province’s regulatory process is far less cumbersome than that of neighbouring Alberta. Sounds like a boom ready to happen, right?

Sunrise heavy oil project. Photo: Husky Energy.

Calgary-based Husky Energy is the big player in Saskatchewan thermal and intends to expand its production over the next five to 10 years.

Spokesperson Mel Duvall says his company’s projects have some of the lowest operating costs in their portfolio, around $8/b: “We use a modular design approach. Essentially the four new plants are all built off the same design, which allows us to take these projects from sanction to first oil in about three years.”

Duvall is referring to four new fields (Rush Lake 2 in early 2019; Dee Valley, Spruce Lake North and Spruce Lake Central in 2020) that will boost Husky’s thermal output from 80,000 b/d to 120,000 b/d by 2021. “We have a large portfolio of potential thermal developments both in Saskatchewan and Alberta that we are looking to bring forward over time,” he said in an email.

Black Pearl Resources is the next biggest producer in Saskatchewan thermal. CEO John Festival says his company brings on projects even quicker than Husky, sometimes in just a few months.

“In Saskatchewan, you make an application and they give you a rulebook that says, ‘This is what you must do to operate thermal projects in Saskatchewan,’” he said in an interview.

Graphic: Black Pearl.

“We just follow the rulebook and we go ahead and get our approvals quite quickly, whereas in Alberta the application process is extremely long, expensive, and painful, and it doesn’t deliver a better project.”

Festival agrees that production costs are very low.

“The thermal operations we have at Onion Lake in Saskatchewan are, by far, our most economic, both from a growth standpoint and from a competitive standpoint,” he said. “It rivals some of the best production in North America. I think it’s better than the Permian.”

Black Pearl is currently producing 6,000 b/d and expects to top out at 20,000 b/d.

The company’s engineers have thought outside the box solve some of the problems they encountered with their Saskatchewan thermal production.

The Onion Lake field, for instance, already had some vertical wells, which got Black Pearl engineers thinking about a novel way to re-use them for SAGD (steam assisted gravity drainage) production.

“We were the first to go back into a reservoir like that, drill horizontal wells for producers, and convert the vertical wells to steam injectors,” said Festival. “That was a first in Alberta and Saskatchewan, I think possibly the world because I’ve not seen another project that has done that. That was very innovative on our part.”

Not to be outdone, Husky is also innovating in its thermal fields.

”We are currently piloting three carbon capture technologies at our Pikes Peak South facility with the intention of rolling the successful technology out to our other operations, said Duvall.

“Captured carbon can be injected into the ground, which helps increase our conventional oil production.”

Photo: Husky Energy.

Husky is also using natural gas-powered steam generators with low nitrogen oxide burners to reduce its greenhouse gas emissions.

Saskatchewan recently released its climate mitigation strategy, which did not include a carbon tax and also exempted oil and gas production. Given earlier commitments, the Canadian government, however, will likely impose its own carbon tax – and possibly other emission-reducing regulations – on the Saskatchewan energy sector.

Don’t expect the Saskatchewan thermal operators to be following the Alberta producers’ plans to substitute solvent for steam to bring down stream oil ratios and emissions.

“We’re not sure if it’s cost-effective because you put expensive solvent in the ground and you need to recover maybe 70% to 80% at a minimum to make it economic,” according to Festival, who thinks the company will likely use natural gas as a cost-effective means of maintaining reservoir pressure.

Husky enjoys the advantage of being a vertically integrated producer, able to ship the Saskatchewan heavy crude to its nearby Lloydminster Upgrader, as well as an asphalt refinery that supply markets in both Canada and the U.S.

“We own a refinery in Lima, Ohio and have a project underway to increase its heavy oil processing capacity from 10,000 b/d to 40,000 b/d in 2019. We just acquired a refinery in Superior, Wisc. which also produces asphalt,” said Duvall.

Unfortunately for Black Pearl, Husky, and the two smaller players Serafina and Broadview that both make about 12,000 b/d each, total Saskatchewan thermal oil boom will be pretty modest.

Production currently sits around 110,000 b/d and will likely peak around 175,000 b/d early in the 2020s, accounting for about four per cent of Canadian oil supply.